While FTX contagion continues, the action on Aave and Uniswap reminds us: DeFi tools continue to work properly, unbothered.
It has been nothing short of astonishing to watch FTX completely crumble in just two weeks.
The scale of the mismanagement was described as “unprecedented” even by Enron’s liquidator, who was appointed as the CEO of the cryptocurrency exchange during the bankruptcy proceedings.
DeFi keeps humming along, luring supply with competitive interest rates, managing non-custodial trades, and liquidating under-collateralized loans at the speed of Ethereum. This is all happening while John J. Ray III continues to sort through the smoldering remains of Sam Bankman-empire, Fried’s sparing no words in the process.
Analyzing the data reveals how remarkably removed from FTX systems like Aave and Uniswap have been.
For instance, this past week saw a dramatic uptick in activity on Aave. Your GUSD, Gemini’s dollar-pegged stablecoin, could have generated more than 73% interest for about an hour. The cause? ordinary human fear
On Wednesday, Gemini announced that withdrawals from its Earn product will be postponed. These delays resulted from Genesis, the lending company that Gemini Earn uses, stopping withdrawals owing to ongoing FTX contagion.
When customers returned to Aave, they sold their GUSD holdings and started borrowing the asset in large quantities. Some speculated that these borrowers intended to short the stablecoin.
Lending rates shot through the roof just as these two occurrences (withdrawals and borrowings) took place to bring more liquidity back onto the platform. Just keep in mind that supply and demand dictate how these decentralized lending systems function. Interest rates fall as supply increases; they will climb as supply decreases (or borrowing increases).
In a chart, here’s what that looked like. Lending rates remain quite high still.
In the worst-case (quite rare) situation, the GUSD could crash and Aave could decide to vote to close this specific market. In any scenario, the DAO, not the project’s creator Stani Kulechov, will decide how that occurs.
The $5 billion DeFi lending protocol’s impending stablecoin GHO (pronounced “go” as in ghost, the project’s mascot), according to Aave co-founder Stani Kulechov, is more confident than ever that it will address real-world payment issues.
On the most recent edition of Decrypt’s gm podcast, he stated, “I think it’s a major concern because just going back a couple of months ago, I was visiting Buenos Aires, Argentina, and stablecoins are utilized to preserve value and transact.” For instance, the national currency in Argentina experiences approximately 100% inflation, which means that whatever you earn as a consumer today, you will only have half of that value—or half the purchasing power—a year from now.
However, he continued, the majority of Argentinians use centralized exchanges. Aave’s GHO, in Kulechov’s opinion, will aid in luring stablecoin users because DeFi makes transaction processing more economical.
The AAVE protocol, for instance, is now deployed not only on Ethereum, Polygon, and Avalance but also on layer 2s, such as Optimism and Arbitrum, Kulechov said. “What I think is missing at the moment, when it comes to stablecoins, and what we’ve seen—the progression of scalability of the underlying infrastructure of the blockchain—is that we are now,” Kulechov said.
“And these layer 2s inherit the Ethereum security in layer 2s and dramatically lower the cost of actually transacting and leveraging blockchain-based security,” he added. The opportunity to use stablecoins as Internet money and to address real-world payment issues while retaining the blockchain exists for the first time, in my opinion.
GHO has been prepared for distribution on the Aave V3 Market on Ethereum after being suggested in July and given the Aave community’s blessing for development a few weeks later. GHO has also received a security examination by Open Zeppelin. No specific release date has been set, however, according to a development update from October, Aave V3, a requirement for GHO, will be available for the Ethereum manner in the upcoming weeks.
GHO will enter a huge and competitive market. According to CoinGecko, stablecoins make up $146 billion, or nearly 14%, of the $1 trillion global crypto market value.
Similar to MakerDAO’s DAI stablecoin, Aave users will be able to mint GHO when it launches against deposited collateral. But there are a few significant variations. In contrast to Maker, which requires users to create separate vaults for each asset, Aave enables users to mint GHO against a variety of types of collateral.
Amid the FTX chaos, Uniswap, the most widely used decentralized exchange on DeFi, surpassed industry titans Coinbase in terms of daily trading volume on Ethereum pairs.
Users have gone away from custodial solutions and away from cryptocurrency exchanges as a result of the FTX instability to trade their funds. Uniswap thus garnered a sizable amount of volume as the biggest, most liquid decentralized exchange on the market.
Additionally, Uniswap isn’t the sole winner in this case. As volumes increased, liquidity providers—individuals who had put money into various pools that allowed traders to trade tokens—also made money.
For instance, the Wrapped Ethereum (WETH) and USDC pool on Uniswap made $3.8 million in fees over the previous week. Depending on how much each LP deposited, that money is distributed among them proportionately. Additionally, anyone can engage in LPs, including a DAO, your granny, and professional market makers.
Although Ethereum gas prices increased slightly during this fiasco, it looks like a good investment to spend a little bit more to avoid using an exchange with a Bahamas registration.
Last but not least, sales of other non-custodial goods such as hardware wallets from Trezor and Ledger skyrocketed. According to Pascal Gauthier, CEO of Ledger, “Ledger had its best sales week ever last week. Our biggest sales day ever was on Sunday. Up until Monday, when we once again surpassed our record.
As a result, the cryptocurrency sector is still recovering from what may be the greatest financial fraud in history.
On the other hand, open alternatives to the conventional centralized system are illuminating the significance of decentralized finance. These alternatives also function very well.
Whether regulators will see things this way is another question.
